Undisclosed commissions accounting for as much as 43.66% of interest charges on car finance agreements are at the centre of a landmark legal case threatening to upend the UK’s £43 billion car finance sector.
The Supreme Court case, Johnson v. FirstRand Bank Ltd, has cast a spotlight on the practices underpinning Personal Contract Purchase (PCP) agreements, a financing mechanism widely used in the automotive industry.
The case raises critical questions about lender transparency and compliance, with accusations that undisclosed commissions have been routinely embedded in PCP deals, inflating costs for consumers and exposing financial institutions and intermediaries to significant liabilities.
Business risk
For car finance lenders, brokers, and dealerships, the potential fallout is profound. Investigations by Sentinel Legal, a consumer rights law firm specialising in mis-sold car finance claims, reveal systemic issues with commission disclosure. In the FirstRand Bank case, documents show that nearly 44% of the interest charged on a single agreement went towards hidden commissions.
“This is a systemic issue, not an isolated incident,” said Sam Ward, Director at Sentinel Legal. “For years, the industry has operated in a way that prioritised profit over transparency. If the Supreme Court sides with consumers, we could see the financial impact cascade across the sector, from lenders to brokers and beyond.”
The Financial Conduct Authority (FCA) has also flagged transparency concerns, estimating that nearly all of the 31.7 million car finance agreements issued since 2007 may involve undisclosed commissions. Such findings highlight the potential scale of the issue, which could rival the financial and reputational damage caused by the PPI mis-selling scandal.
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Regulatory and political interventions
The Treasury, FCA, and even Labour’s Shadow Chancellor Rachel Reeves have intervened in the case, reflecting its far-reaching implications. While these interventions are framed as clarifications of regulatory intent, industry insiders suggest they also aim to mitigate risks for lenders and maintain market stability.
For businesses, these developments signal an urgent need to revisit compliance frameworks. Industry players who fail to address transparency risks could face regulatory scrutiny, reputational harm, and increased legal liabilities.
Industry pushback
Lenders are warning that a ruling against them could destabilise the car finance industry, potentially leading to stricter credit terms and reduced consumer access to PCP agreements. Trade groups have emphasised the financial risks to businesses dependent on car finance sales, including dealerships, which often rely on PCP agreements as a key revenue stream.
However, Sentinel Legal argues that these defences only underscore the systemic nature of the problem. “The industry’s reaction is telling,” said Ward. “The pushback isn’t just about liabilities — it’s about avoiding the transparency reforms that this case could demand.”
Comparisons to PPI
The case has drawn comparisons to the PPI scandal, with stakeholders bracing for a surge in claims should the Supreme Court rule in favour of consumers. For lenders, brokers, and intermediaries, the operational and financial burden of handling claims could be substantial, necessitating robust contingency planning.
“This could be the PPI of car finance,” Ward added. “Businesses need to assess their exposure now — ignoring the issue won’t make it go away.”
